Assure Holdings Corp.

Good day, and welcome to the Assure Holdings First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please also note this event is being recorded. And now I would like to turn the conference over to Scott Kozak, Director of Investor Relations. Please go ahead.

Hello, everyone. Thank you for participating in today's conference call to discuss Assure Holdings financial results for the first quarter of 2022. On the call today are Executive Chairman and CEO John Farringer and CFO John Price. After market closed this afternoon, the company issued a press release announcing its results for the first quarter of 2022. The release and investor presentation are available on the investor section of our website. Before we begin to prepare remarks, I would like to remind you that some of the statements made will be forward looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Assure's recent filings with the SEC, including our quarterly report on Form 10-K for the fourth quarter and full year for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also on today's call, management will reference certain gap financial measures, which we believe provide useful information for investors. For a reconciliation of these non-GAAP measures, please consult the most recently filed 8K associated with the filing of the earnings release for the three months ended March 31, 2022, which is available on the SEC website. Finally, I would like to remind everyone who dialed in to the call by telephone, you may want to join our webcast or download our first quarter 2022 earnings presentation on Assure's investor relations site, found at ir.assureneuromonitoring.com. in order to see the slides referenced today. This call will be recorded and made available for replay via link on the company's website. Now, I would like to turn the call over to the Executive Chairman and CEO of Assure Holdings, John Porringer. John?

Thank you, Scott. Hello. Good afternoon, and thank you for joining us today. Today, we'll provide an update on our recent performance, the progress we've made against our strategic objectives, and discuss our vision for sustained rapid growth over the next several years. Select highlights include, firstly, record system-wide collections of 7.2 million, including a record 5.6 million from 100% owned Assure professional and technical entities in the first quarter. This was driven by accelerated collections of newer claims and out-of-network settlements on disputed claims. Secondly, the continued ramp of our higher margin remote neurology services platform. Thirdly, our selection as contracted provider of interoperative neuromodern services for two additional group purchasing organizations. Fourthly, adding a 13-state to our operational footprint. And lastly, we added several important new leadership hires that had important skills to experience in scaling emerging growth companies. In 2022, we continue to expect 25,000 plus managed procedures, an increase of more than 40% from 2021. During the first quarter of 2022, we did more than 5,100 procedures, an increase of more than 80% versus the prior year number of approximately 2,800 in Q1 of 2021. Next, on slide four and five, I will relay the current status of Assure's revenue cycle management function and our overall billing and collections efforts. There were some developments that we were really excited about, as well as some challenges faced by our revenue cycle management team. I will start with the challenges. Regretfully, we reported a reserve of $4.4 million in older receivables. For longstanding company policy, these claims were automatically written down after reaching the 24-month threshold. There is no excuse for these aged receivables to have not been worked in a timely and effective manner, and we are accountable for that. We've learned from this experience and set up a tactical team to specifically pursue these reserve claims. The company expects to begin seeing results from these collection efforts in the late second quarter, but significant traction during the second half of 2022. Given the ramp up, we anticipate that there will be a bad debt charge in the second quarter. This will be smaller than what we experienced in the first quarter, but will still have a material impact. The net result will be that we expect EBITDA to be negative in Q2. The company expects Q3 EBITDA to be positive and Q4 to be very strong based upon our current forecast. Ultimately, we expect to recover a meaningful share of cash receipts from these fully reserved receivables. I want to point out that the issue we are experiencing in 2022 is different from Assurance 2020 right now. In 2020, the primary driver was a sharply lower accrual rate of net cash anticipated to be recovered from the cases we performed. The primary driver in 2022 is writing off reserves from an accounting standpoint because they had aged 24 months. We are confident that we will get to the issue from a cash collections perspective and it will be resolved in the near term. I want to point out that Paul Webster, who's been with Assure since early 2019, has been promoted to the role of Senior Vice President and will oversee revenue cycle management in this team going forward. I want to point out that Paul has been doing an outstanding job for us from a managed care perspective, overseeing assurances in network contracting and billing strategies with external payors. I'm confident the challenge with these age receivables is an isolated issue that will not be repeated. We will not accept this going forward, and neither should you. Moving on to the next slides. While we are experiencing an issue with aged accounts receivable, as you can see on slide five, we are also seeing a dramatic increase in current cash collections over a trailing six, 12, and 24-month period. Assure achieved a record total collections of 7.2 million during the period, and record collections for 100% owned Assure entities of 5.6 million in the quarter. Further, for accounts receivable generated from 100% Assure-owned entities, Assure is collecting approximately 65% in the first six months after they were issued, and 85% in the first 12 months after they were issued. Both of these are record rates for the company. Accelerating our cash flow reduces our need for working capital and also works to minimize reserves for the future. Taking a holistic look at the business, if you take our net revenue of $4.7 million and add back bad debt of $4.4 million, the revenue of the core business excluding this charge is approximately $9.1 million. These accounting charges are not slowing down our belief that we will have a significantly strong second half of 2022. This includes our expectation of reporting positive adjusted EBITDA in full year 2022, anchored by strong revenue growth, managed case volume expansion, stable accrual rates, and our ramping remote neurology platform. Our goal is to become operationally cash flow and even a positive on a full year basis. Slide six, I'll provide an update on a remote neurology business. As you recall, the one-to-many model utilized for remote neurology services is where Assure is pivoting its business. To be clear, Assure neurologists are simply servicing the patient volume we already have established through the managed cases that our technologists perform. The focus now is simply transitioning Assure's patients onto our remote neurology platform. As you can see in this chart, we are ramping our remote neurology services rapidly and anticipate performing more than 10,000 cases in 2022. Remote neurology is higher margin than our technology services, with receivables that are typically collected with much less friction. The reason Assure's telehealth remote neurology offering is one of the company's most important growth opportunities is because it is higher margin than our technology services, with receivables that are typically collected at an accelerated rate. Next, on to slide seven, you will see our geographic footprint. States in green represent our current operations, and those in yellow are locations that we are targeting. First quarter, we expanded to Minnesota, our 13th state, and anticipate meaningful growth potential in that market. Looking forward, the single most important catalyst for Assure's expansion is the winning of system-wide hospital facilities contracts. Next slide, please. We highlight our most important system-wide contracts to date. For a number of these, Assure serves as the sole contracted provider of interoperative neuromonitoring services. The first and largest is with Premier. As we previously reported, Premier is the second biggest group purchasing organization, or GPO, in the United States, with an alliance of approximately 4,400 U.S. hospitals. In addition, last month, Assure was selected as the Interoperative Neuromonitoring Provider for two additional GPOs, Yankee Alliance and Conductive. Yankee Alliance is a national healthcare GPO with over 18,500 members in all classes of traits. Conductive's membership includes 500 hospitals and surgery centers and more than 50 health systems. To add a bit more color on these GPOs, terms of these agreements were favorable from a surer's perspective. In addition, they provide us with a hunting license to pursue opportunities with their respective networks. For Yankee Alliance, the pricing is entirely pre-negotiated for all of their members. We believe this will facilitate more expeditious facility negotiations and implementations. Also, While Conductive is affiliated with Premier, it includes a sizable number of members that are outside of Premier's network. This provides additional greenfield opportunities for Assure. Further, Conductive and Yankee employ clinical experts who will work on Assure's behalf to help us gain access to the facilities in their network. These GPO agreements are consistent with our strategy to build a platform that enables hospitals and medical facilities to outsource interoperative and remodeling services for thousands of procedures annually. On slide nine, I wanted to briefly introduce new talent added to Assure's management team. These individuals bring skills and experience that Assure did not have before. and are poised to make a substantial positive impact on the organization. Brian McDonald is our Vice President of Business Operations, responsible for corporate strategy initiatives to drive growth and improve business performance. He will work to identify, analyze, and resolve business challenges and capitalize on new growth opportunities. Before joining Assure, Brian's experience included serving as Chief Financial Officer at Health Fidelity and Chief Operating Officer at Health Language prior to and following its acquisition by Walters Kluwer Health. Kelly Shelton is our new Vice President of Sales, overseeing organic growth and channel strategy. Kelly has more than 25 years of experience as a sales leader in the healthcare industry. Most recently as Vice President at Zimmer Biomed Spine where he led a team that generated more than $500 million in annual sales. Before that, Kelly was Area Vice President of Striker, Spine, where he grew strategic accounts and negotiated and closed numerous GPO contracts. Sherry Wagner was our Vice President of Human Resources. Previously, Sherry held multiple HR roles at Fortune 250 organizations, including Amazon and Dish Network. Finally, James Watt was appointed to the position of National Technologist Director, ensuring quality of service and overseeing the company's training and development program. In addition, he will play an important role in the establishment of new competencies that will drive Assure's expansion into adjacent markets, such as EEG, et cetera. James is highly experienced in the interoperative neuromodern industry and maintains extensive relationships with surgeons and hospitals. Finally, on slide 10, I want to highlight a few aspects of our ramp in managed cases. The first is the added scale in terms of managed procedures is critical from both an economies of scale and market share capture perspective. Second is the seasonality of our business. We anticipate that the company's managed cases will follow the familiar pattern of a continued ramp up from the first quarter to a progressively busier second, third, and fourth quarters. Similarly, our revenue mix reflects the seasonality, with the first quarter typically representing our highest percentage of cases with patients utilizing government insurance. Each quarter after that, seeing the mix become progressively tilted toward more profitable commercial insurance. We anticipate both seasonality trends to continue in 2022. Before handing off to John Price, I wanted to emphasize our confidence and our belief that the opportunities ahead of us with remote neurology services, GPOs, organic expansion to new states, Our channel program and our commitment to clinical excellence will lead us to success both in the current year and in future years to come. Next, John Price will walk us through the quarterly financial information. John.